When the One Big Beautiful Bill Act (OBBBA) was signed on July 4, 2025, it made 100% bonus depreciation permanent for qualifying property put into service after January 19, 2025. Before this, bonus depreciation was set to phase out by 2027. That phase-out is gone for qualifying assets now, which changes the game for anyone buying, building or renovating commercial or multifamily property.
What this really means: Assets that a cost segregation study moves into shorter recovery periods; 5-year, 7-year and 15-year property, instead of the usual 27.5-year (for residential rentals) or 39-year (for commercial properties). These can now be fully written off in the year they’re put in service, rather than slowly depreciated over time. This speeds up cash flow in a big way, and it’s the reason cost segregation has become standard practice in underwriting for developers, not just a niche tax move.
Vetting the provider’s track record
So much depends on how the study is done, so you need to vet cost seg firms just like you would any other big capital decision. Ask for sample deliverables when reviewing cost seg providers, not just glossy brochures. A solid report lays out the numbers so your CPA can check every line.
Ask for case studies from similar projects, and talk to past clients whose studies actually went through IRS review. Independent reviews are helpful too, so consider reading R.E. Cost Seg reviews, as they reflect clients’ experiences across projects, not just what salespeople say.
Why the IRS is looking more closely
Cost segregation isn’t new: The IRS set its standard after the HCA v. Commissioner (1997) case, and they’ve had a Cost Segregation Audit Techniques Guide (ATG) for years. What’s changed is how hard they’re looking.
In February 2025, the IRS released an updated version of the Guide, and the message was clear: Studies done with rough estimates or shortcut software are more likely to get flagged, but studies built on real methodology are more likely to stand up to scrutiny.
What engineering-based means
According to IRS Publication 946 and the ATG, an engineering-based cost segregation study that will survive an audit usually involves someone with real construction or engineering experience coming out to the site, checking the actual building plans and tying real invoices and change orders to what was actually built. In other words not just applying a generic industry percentage to total project cost. The 2025 ATG update reinforces this, not loosens it, and that’s why this kind of construction cost reclassification has become a specialty, not just a spreadsheet job. If you’re a developer evaluating providers, here are the big questions:
- Who does the site visit, and do they have real construction cost segregation experience?
- Will the firm stand behind their study and handle IRS audit defense, or is that on your CPA?
- How does the firm document the distinction between tangible personal property (Section 1245) and structural components (Section 1250); and the key tax categories for 5-, 7-, and 15-year treatment?
- Has their approach been updated to reflect the February 2025 ATG and current IRS guidance?
Where the real value lies
For people in construction or development, the important thing isn’t just the tax code, it’s the building itself. A good study looks at what architects and contractors actually specified, and splits it up according to what the tax code allows, allowing you to make a commercial property tax strategy:
HVAC: Basic building-wide HVAC stays as long-lived property, but equipment tied to special uses such as cooling for server rooms, kitchen exhaust systems, or dedicated ventilation for certain spaces can usually be treated as 5- or 7-year property.
Electrical: The base building wiring is long-term, but anything dedicated to equipment, signage, or tenant systems can often be reclassified. A real, detailed breakdown makes this defensible.
Site improvements: Stuff like parking lots, landscaping, outdoor lighting and fencing usually count as 15-year land improvements, not just part of the main building. Without a property-specific review, these get missed.
A typical example
Let’s say you buy a $3 million multifamily property after the OBBBA effective date. A quality engineering-based study, meaning a site visit, documentation and component-level digging, could reclassify between $600,000 and $900,000 into 5-, 7- and 15-year property: Appliances and certain finishes go to 5-year, some electrical and mechanical items into 7-year and site work into 15-year.
With 100% bonus depreciation, you get to expense that whole chunk in year one rather than stretching it out over 27.5 years. The difference in the first-year deduction, sometimes hundreds of thousands of dollars, is exactly why a thorough study is worth it.
Why the vetting matters
Permanent 100% bonus depreciation raises the stakes for what a good cost segregation study for developers can do, but the deduction is only as strong as the work behind it. The IRS now expects engineering-based methodology as the norm, not a fancy extra.
For developers of commercial properties, what matters is how deeply the provider digs into the building’s components, how well they document their process and whether they’ll back you up if the IRS comes calling. Make sure you have those answers before you file, not after.
